Rupee Hits New Low

September 30, 2021

The US dollar’s ascent against the rupee continued reaching a new high of Rs170.48 after gaining 52 paisas in the interbank market amid strong demand as rising imports put pressure on the already fragile local currency.Since May 7, the dollar has gained 11.5 percent against the rupee. In September, however, it increased by 2.4 percent on a daily basis, with the exception of a few days when the State Bank of Pakistan (SBP) intervened to support the rupee.

Experts and analysts believe that the only way to stop the rupee’s depreciation is to reduce imports and increase exports, while market sentiments that are weakening the currency must also be changed quickly and strictly. “It is primarily the trade deficit that is putting downward pressure on the exchange rate, but it is not enough to say that imports are extremely high,” Tahir Abbas, head of research at Arif Habib Ltd, said (AHL).The entire world is experiencing a commodity super-cycle. Every commodity’s price is rising, raising the cost of imports and causing trade imbalances,” he said, adding that Pakistan has a chance of winning the IMF’s trust and receiving the remaining loan tranches.

“A possible successful deal with the IMF will undoubtedly boost the local currency’s morale, as well as the confidence of importers. The race among importers to buy and book the most dollars for future imports has heightened dollar buying,” he added.In the long run, we should increase production of the products we require on a yearly basis. We need about 2 million tonnes of DAP for agriculture, but only produce about 0.75 million tonnes, so we have to import the rest,” he explained.

The current international price of DAP is $675 per tonne, which means we’ll have to spend about $900 million on DAP imports,” he said, adding that it’s an unnecessary financial burden.One of the reasons for higher dollar buying, he said, is the change of regime in Afghanistan. “No official figures are available, but it is estimated that $5 million to $7 million is being sent to Afghanistan every day since the country has lost all business and its $10 billion in reserves has been seized by the US.

He claimed that rising petroleum prices have had a negative impact on the country’s balance sheet and increased the trade deficit. He stated that all commodities, including food, are increasing in price.According to another analyst, increasing exports is the only way to strengthen the local currency.Our export accounts for about 7% of GDP, whereas it should account for 15%. We won’t be able to predict what the real exchange rate will be in the near future unless we improve this situation.

Despite being a farming country, our major crop yields have been declining, and we now import wheat, cotton, and a variety of food items. These imports demand the government’s immediate attention, and the situation can be improved.He predicted that, based on the way imports increased to $6 billion in August, the current fiscal year would end with $65 to 70 billion in imports.

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